Minutes of the London FXJSC Legal Sub-committee – 28 November 2023

Minutes

Minute 1: Introduction and Minutes

The minutes of the meeting of 20 September 2023 were approved.

Minute 2: Discussion on International Swaps and Derivatives Association

Katherine Tew Darras, Richard Sandilands, Ann Battle, Mark New, Megan O’Flynn and Jonathan Martin

The group presented to the committee on the following upcoming and evolving projects.

1. Update on FX Definitions:

ISDA, along with co-publisher EMTA, are looking to finalise the drafting of new provisions of the 1998 FX and Currency Options Definitions by the end of 2025 and implementation is expected towards the end of 2027. Upon implementation, it is expected that market participants will reference the new definitions in new transactions. ISDA recognises from previous definitional updates that a longer implementation period is required to allow the definitional changes to track through various systems efficiently and effectively. The objective is to submit the changes to SWIFT in May 2026 and to gain approval by August/September 2026 and implementation in November 2027, in accordance with SWIFT’s standard schedule. At present, SWIFT only allows for one set of definitions on their platform which will encourage the market to use the new definitions once SWIFT adopts the new definitions. Regarding implementation, they acknowledge that there will necessarily be a period of overlap with some contracts in the market governed by the old definitions (i.e., contracts executed prior to the effective date in November 2027) and others by the new, but based on BIS data for the tenor of FX transactions, they expect that approximately 80% of new transactions will be subject to the new definitions within one year of implementation, and 90% of new transactions will be subject to the new definitions within 5 years of implementation. In terms of the changes, the format will be along similar lines to the new rates definitions (digitized and versionable). Substantive areas being considered for change or amendment relate to disruption events and disruption fallbacks, unexpected holidays, and Calculation Agent provisions. ISDA is working closely with EMTA as co-publisher of the definitions and part of the project will be to consider “upstreaming” certain terms and provisions currently in EMTA template terms into the main definitions. ISDA is also working with other infrastructure providers (such as CLS) and trade bodies (such as GFXD), as well as other central banks and FXCs, both directly and through GFXC.

2. ISDA Notices Hub:

In response to the problems caused by difficulties and delays in delivering termination notices, such as where the notice address has changed but the counterparty has not been notified, or around events like the onset of the Covid-19 pandemic and Russia’s 2022 invasion of Ukraine, ISDA is proposing to set up an electronic “Notices Hub.” A relevant notice—such as a termination notice under the ISDA 2002 Master Agreement-- would be considered “delivered” using the Notices Hub at the point in time when Notices Hub makes the notice available to the recipient on the platform – in other words, the first point in time at which the recipient would have been able to access the notice on the Notices Hub had it attempted to do so. The Notices Hub can also send alerts to the recipient once a notice is logged and set reminders to participants to update notice addresses. ISDA are currently undertaking a survey to establish jurisdictions where electronic service may be problematic from a legal certainty perspective. Physical delivery will still be a valid alternative.

Before advancing, ISDA will also seek assurance from the market that this product will be adopted widely as they estimate that it will need around 80-90% take up for it to be effective. If approved, the Notices Hub will use an existing market platform which should assist with data protection and confidentiality issues. ISDA recognised that they will need to ensure that different types of notice are treated accordingly. It is expected that the market platform will charge dealers for the service but not buy-side market participants, and if implemented, there will be a protocol launched to facilitate adoption. They mentioned that resolution authorities may have statutory restrictions on method of serving, but still see value in the Notices Hub.

3. Digital Assets Documentation:

ISDA has published its new ISDA Digital Asset Definitions, which are designed to allow parties to document cash-settled forward and option contracts referencing Bitcoin and Ether. This scope was chosen to allow the Definitions to be developed with specific use cases, but many of the legal and risk issues addressed in the Definitions will be relevant for a broader range of digital assets. During the development of the Definitions, several specific issues for such assets were identified, for example the importance of the price source selection and the treatment of forks. ISDA used a modular drafting approach to allow flexibility in adding further product coverage, given the evolving nature of products. ISDA has noted less market interest than previously anticipated, in large part due to the events in the cryptocurrency markets in late 2022 as the Definitions were being finalized.

4. ISDA Sanctions Whitepaper:

ISDA previously published a sanctions whitepaper in 2019 and a guidance note in 2020. As relevant, they have liaised with sanctions authorities in various jurisdictions to seek clarification of various market issues, including facilitation. ISDA is now preparing a new whitepaper (to be published before year-end). Whilst the same high-level considerations will apply, the new paper will update the 2019 paper in light of intervening sanctions and the much broader set of participants now affected by them. ISDA continues to be involved in discussions with sanctions authorities, for clarification purposes, but also to assist in ensuring the sanctions are, to the extent possible, co-ordinated between authorities and are clear in the context of the market.

Minute 3: Any other business

There was no other business to discuss.

Attendees

Sharon Blackman (Chair) - Citigroup

David Harris – Financial Conduct Authority

Rowland Stacey – Goldman Sachs

Simon Goldsworthy – Deutsche Bank

Tamsin Rolls – JP Morgan Chase

Krisha Somaiya – UBS

Navin Mathur – LSEG

Mayank Patel – Bank of America

Dominic Phillips - Morgan Stanley

Baljit Saini - NatWest Markets

FXJSC Legal Sub-Committee Secretariat

George Johnston (Secretary) - Bank of England

Matthew Hartley – Bank of England

Hana Mori – Bank of England

Shirlyn Gathoni – Bank of England

Guest attendees

Katherine Tew Darras - ISDA

Ann Battle - ISDA

Mark New - ISDA

Jonathan Martin - ISDA

Richard Sandilands - ISDA

Megan O’Flynn – ISDA

Jonathan Fairfax (observer) Citigroup

Apologies

Rakesh Shah – Standard Chartered

Harkamal Singh Atwal – HSBC

Nimisha Kanabar - Morgan Stanley

Gaynor Wood – CLS

Sunil Samani - XTX Markets